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Author: TMFCatB One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 154  
Subject: Notes on Nintendo’s FY 2012 Date: 4/26/2012 4:52 PM
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Hi, Global Gains Fools.

First, the bad news: Nintendo posted an annual loss of 43 billion yen, or over $500 million USD, the first such annual loss since the console and game developer went public. The good news: we knew this was coming because management warned us (as Nathan pointed out in his post on Nintendo’s Q3 2011, which you can see here: http://boards.fool.com/1106/3q-earnings-notes-29815240.aspx).

So what happened? Only what we already knew. Sales of the 3DS started slow last summer, which led Nintendo to cut the price by as much as 40%. Naturally, that hurt profitability, even as it helped move the units. Software rollouts for the 3DS eventually picked up along with the rising 3DS sales. The most popular 3DS titles included Nintendo offerings Super Mario 3D Land and Mario Kart 7, as well as a few third-party titles. However, according to management: “the start of the year-end sales season was slower in comparison to the last few years. As a result, recovery from the sales slump in the early fiscal year was not achieved.”

Also working against Nintendo was the strong yen. “In addition to… price reductions of the Nintendo 3DS hardware… along with the inventory markdown…the impact of a much stronger yen against foreign currencies during the fiscal year, net sales were 647.6 billion yen (of which overseas sales were 499.4 billion yen, or 77.1% of total sales). The operating loss was 37.3 billion yen. Due to exchange losses totaling 27.7 billion yen, the ordinary loss was 60.8 billion yen, and the net loss was 43.2 billion yen.”

You can see the full release here: http://www.nintendo.co.jp/ir/pdf/2012/120426e.pdf

Management is looking ahead to the launch of the Wii U (which features a controller complete with a 6.2-inch touch screen, and which was central to Nathan’s recs in August and September, 2011) at the end of this calendar year.

See a Wii U demo here: http://www.youtube.com/watch?v=4e3qaPg_keg

Additionally, going forward, the company has decided not to sell the 3DS below cost; a few new title releases, including New Super Mario Bros. 2, are scheduled for the summer and fall as well.

Now to our GG outlook: It’s not yet “game over.” Nintendo’s game franchises still enjoy broad appeal, the company still has a solid balance sheet, and we’re looking forward to Wii U sales, which we will watch closely. If playing Mario Bros. has taught us anything, it’s that sometimes you’ve got to hit your head against a brick to get a coin. Despite this shorter term pain, Nintendo’s longer term picture still looks promising.

Would love to hear your thoughts, GG fools! Post away.
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